Former Chief Executive Officer and Chief Financial Officer of Nasdaq-Listed Company Charged With Operating a Continuing Financial Crimes Enterprise in Multi-Year Scheme to[...]

Earlier today in federal court in Brooklyn, a ten-count indictment was unsealed charging Puthugramam "Harish" Chidambaran, the founder and former Chief Executive Officer of iLearningEngines, Inc. (iLearning), and Sayyed Farhan Ali "Farhan" Naqvi, iLearning's former Chief Financial Officer, with running a continuing financial crimes enterprise, conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud. The charges arise from the defendants' years-long scheme to defraud retail and institutional investors in iLearning, a technology company that claimed to provide artificial intelligence (AI)-driven business automation solutions, and to obtain financing for iLearning through materially false and misleading statements about the company's financial performance. Chidambaran was arrested this morning in Potomac, Maryland, and will appear this afternoon in federal court in the District of Maryland. Naqvi was arrested this morning in San Jose, California, and will appear this afternoon in federal court in the Northern District of California. Both defendants will appear in federal court in the Eastern District of New York at a later date.

Joseph Nocella, Jr., United States Attorney for the Eastern District of New York, and James Barnacle, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI) announced the charges.

"As alleged, the defendants exploited investor excitement over the AI boom and presented a rosy financial outlook to investors and lenders that was built on lies. While the defendants pitched iLearning as a way to revolutionize training and education through AI, the truly artificial part of the defendants' story was iLearning's customers and revenues," stated United States Attorney Nocella. "Our Office is committed to protecting investors and holding accountable corporate executives who undermine the integrity of our financial markets for personal gain."

As alleged in the indictment, iLearning was a Bethesda, Maryland-based technology company founded in 2010 by Chidambaran. iLearning marketed itself as "an out-of-the-box AI platform that empowers customers to 'productize' their institutional knowledge and generate and infuse insights in the flow-of-work to drive mission critical business outcomes." iLearning claimed to earn revenue primarily by selling licenses for its platforms to customers, and the company reported rapidly growing revenues that reached $421 million in 2023.

In April 2024, iLearning became a publicly traded company. In connection with its going-public transaction, iLearning also obtained $40 million in loan proceeds from the New York City branch of a financial institution. Shortly thereafter, iLearning obtained an additional $20 million in loan proceeds from another New York City branch of a financial institution. Following its going-public transaction, iLearning's shares began trading on the NASDAQ under the ticker symbol "AILE," and the company quickly achieved a market capitalization of approximately $1.5 billion.

Unbeknownst to investors and lenders, however, iLearning fabricated virtually all its customer relationships and revenues. As alleged in the indictment, the defendants inflated iLearning's revenues through an intricate web of sham contracts with purported customers-often purportedly worth tens of millions of dollars per year. The agreements were often signed by iLearning employees or family members of iLearning employees posing as senior executives of the purported customers. The defendants and others at iLearning then created fake information about those purported customers, including, for example, creating a website for a shell entity, to deceive investors and lenders into believing that iLearning's customers were real. In other cases, the defendants convinced friends and associates of iLearning executives to enter into sham contracts with iLearning and to lie to iLearning's auditor, potential investors, and lenders on iLearning's behalf.

To make it appear as though iLearning was generating revenues from its sham contracts, the defendants "round tripped" money that iLearning received from lenders and investors-sending those funds to purported customers, who, in turn, would send that money back to iLearning. For example, at Chidambaran's direction, an associate of Chidambaran, who previously worked as an iLearning vice president, incorporated and opened bank accounts in the names of several purported iLearning customers. Over the course of several years, the defendants transmitted millions of dollars from iLearning to an account controlled by this individual. This individual then sent those funds to other accounts he controlled in the names of other entities, before ultimately sending the money back to iLearning. The aggregate value of these round-trip transactions exceeded $144 million.

In August 2024, an investment research firm issued a report alleging that iLearning had materially misrepresented its revenue, including by attributing a significant portion of its reported income to undisclosed related-party transactions. Following the publication of that report, iLearning's stock price declined precipitously, erasing a substantial portion of its market value. When questioned about the contents of the short-seller report, the defendants repeatedly lied to their investors and lenders about the nature of iLearning's relationship with its largest customers-including by repeatedly denying that its largest purported customer was actually an entity controlled by the defendants and others at iLearning-and directed representatives of their purported customers to lie on their behalf. iLearning ultimately filed for Chapter 11 bankruptcy protection in the District of Delaware in December 2024, and the proceedings were later converted to a Chapter 7 liquidation in 2025, marking the collapse of the company.

Prior to iLearning's collapse, both Chidambaran and Naqvi profited handsomely from their scheme. In connection with iLearning's going-public transaction, Chidambaran received more than $500 million worth of iLearning common stock and subsequently received approximately $12.5 million in iLearning restricted stock units. Likewise, Naqvi was awarded iLearning common stock worth approximately $11.2 million, and iLearning paid out nearly $4.5 million in cash to cover his tax liabilities.

The charges in the indictment are allegations, and the defendants are presumed innocent unless and until proven guilty. If convicted of the continuing financial crimes enterprise charge, the defendants each face a mandatory minimum term of 10 years' imprisonment and a maximum term of life.

The government's case is being handled by the Office's Business and Securities Fraud Section. The case is being prosecuted by Assistant United States Attorneys Joshua Dugan and Kamil R. Ammari, along with Paralegal Specialist Timothy Migliaro.

The Defendants:

PUTHUGRAMAM CHIDAMBARAN
Age: 57
Potomac, Maryland

SAYYED FARHAN ALI NAQVI
Age: 44
Houston, Texas

E.D.N.Y. Docket No. 26-CR-97 (LDH)